European Union claims Boeing’s tax breaks are illegal

GENEVA – The World Trade Organization on Monday agreed to set up a panel to examine European Union allegations that Washington state’s $8.7 billion in tax breaks to the Boeing Co. to manufacture its new 777X model there are prohibited subsidies under global trade rules.

The EU’s legal adviser, Mikko Huttunen, told WTO delegates the Washington state incentives create “a massive disadvantage” to the European aircraft industry, diplomats who attended the session said.

The U.S. delegation did not block the establishment of the dispute panel but countered that the state tax incentives are “fully consistent” with U.S. obligations under the WTO accords, sources familiar with the closed-door proceedings said.

Charlie Miller, a Boeing spokesman, defended the tax breaks, saying they were not offered uniquely to Boeing.

“The tax measures the EU challenges today are not market-distorting subsidies,” he said. “They are available to all aerospace companies, including Airbus and its suppliers.”

He called the EU’s complaint an attempt to divert attention from Europe’s own massive subsidy for aircraft development for Airbus, which is based in France, and was founded by France, Spain, Germany and the United Kingdom. At issue is so-called “launch aid,” low-interest or no-interest loans for the development of an aircraft that don’t have to be repaid if the aircraft is not a commercial success.

“European governments have provided, and continue to provide, massive amounts of launch aid to Airbus for every airplane development program,” Miller said. “It is an effort to further delay EU compliance with the WTO’s 2011 ruling that launch aid is an illegal, market-distorting subsidy.”

The new dispute is the latest in a decade-long, multibillion-dollar fight between the world’s two biggest manufacturers of large civilian aircraft. The WTO ruled in 2010 and 2011 that both the United States and the EU had violated international trade agreements by providing their manufacturers billions of dollars in subsidies, and those rulings were upheld on appeal in 2011 and 2012.

But both sides still are engaged in the battle, awaiting a ruling expected this year by the WTO’s Dispute Settlement Body on whether the U.S. and the EU have complied with the earlier findings.

Diplomats said that the EU’s Huttunen said that a 2013 decision by Washington state to extend until the end of 2040 “very significant” tax breaks for Boeing violated a 2012 WTO ruling that those incentives were illegal.

In its Feb. 13 complaint to the WTO, the EU claimed that Washington violated the ruling by making the tax incentives contingent upon placing production of the wings and final assembly for any new commercial aircraft or variant in Washington and maintaining all wing assembly and final assembly of such commercial aircraft exclusively in the state.

While Boeing assembles aircraft in Washington, Airbus’ final assembly location is outside Toulouse, France.

Boeing’s 777X is the latest variant of the aircraft company’s so-called “Triple 7” wide-body aircraft, which are described as the world’s largest twin-engine commercial airliner, capable of carrying as many as 400 passengers and traveling more than 9,000 miles. It is designed to compete with Airbus’ A350 aircraft, which can carry as many as 360 passengers.

The two aircraft manufacturers closely watch each others’ sales in an annual competition that Boeing won last year, when it sold nearly twice as many wide-body aircraft to airlines as Airbus.